How do you factor social security into a retirement plan? What is my process? What do people do wrong with social security because they don’t understand how it works? In this episode of the Retirement Made Easy podcast, my goal is to simplify social security benefits to help you make an informed decision.

You will want to hear this episode if you are interested in…

  • [3:15] How to get a FREE retirement assessment
  • [4:25] Social security basics you need to know
  • [8:35] Understanding the cost of living adjustment
  • [11:18] Should you claim your benefit early and reinvest the money?
  • [12:44] The social security survivor benefit

Social security basics that you need to know

Most people know that you need to have worked 10 years or 40 quarters and paid in taxes to qualify for social security retirement benefits. Social Security is clear that it was never intended to make up 100% of your retirement income. They claim it should only account for 30%. Where does the other 70% have to come from? A pension or your personal savings (401k or Roth IRA).

The next thing you need to know is that you can claim your social security benefit as early as age 62 or as late as age 70. Your full retirement age is between 66 and 67 based on your year of birth. If you claim your benefit before your full retirement age you’ll be hit with income restrictions. For every $2 you earn over $19,560, social security will withhold $1 of your benefits.

As a financial planner, my goal is to help you determine the optimal age to claim benefits. Social security won’t advise you on this (nor should you expect them to). It’s their job to provide you with the information.

Understanding the cost of living adjustment

Social security announces a cost-of-living increase in October of every year for the following calendar year. In 2022, social security benefits increased 5.9% because inflation in 2021 was through the roof. Inflation was up 7% in 2021 but you can never expect social security to be in lockstep with inflation. From 1985 through 2021 the average cost of living adjustment per year was 2.5%.

Some years the benefit decreased because of Medicare Part B (which comes out of your social security benefit). If the cost of Medicare Part B increases and there is no cost of living adjustment, what you get will decrease. Since we don’t know how much Medicare Part B will increase yearly, we have to plan accordingly. We factor in a conservative 1.5% cost-of-living adjustment from social security in our retirement plans.

The social security survivor benefit

Statistically speaking, women outlive men. If you’re looking at things logically, you want to make sure the wife is provided for if the husband passes away. If both spouses are collecting social security—and the husband’s benefit is higher—his benefit becomes hers when he passes away (for the rest of her life). We usually advise people to delay the higher of the two benefits when possible so the survivor benefit is maximized. Then, we claim the wife’s benefits earlier. If something happened to her, the husband would still have the higher benefits available.

There is no one-size-fits-all retirement plan. We pay thousands of dollars for software to analyze different options for our clients. Obviously, the decision is difficult because we don’t know when anyone will die. We can only make educated assumptions based on average life expectancies.

Should you claim your benefit early and reinvest the money? Listen to hear my thoughts on this listener question!


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